The Nasdaq composite index lost 92.85 to 3,676.78, and the Standard & Poor's 500 index fell 26.66 to 1,440.51. The Dow Jones industrial average fell 201.58 to close at 10,923.55, led by Home Depot and United Technologies
The CNET tech index lost 33.28 to close at 2,931.69, dragged down by shares of AMD and KLA-Tencor.
Losers edged out winners, with 66 of the 98 stocks in the index falling and 32 rising.
Of the 18 sectors tracked, Internet services and semiconductor equipment companies posted the sharpest drops, falling about 5 percent each. Wireless firms were the day's largest gainers, climbing nearly 3 percent.
Intel closed down 75 cents at $121.13, after ABN Amro raised its rating on the chip maker. Mircosoft closed down 13 cents at $79.25 on a volume of 47 million shares, making it the second most heavily traded stock on the Nasdaq behind Cisco Systems
The initial offering of Nuance Communications, a telecom software company, was the biggest percentage gainer on the Nasdaq. Shares jumped $16.94, or nearly 100 percent, to $33.94. Volume topped 6.6 million shares.
Broadband video networking company FVC.Com was one of the Nasdaq's biggest losers, falling $6.13, or 43 percent, to $8.13 on a volume of 1.5 million shares. The company warned that first quarter losses will be higher than expected.
Among members of the CNET Tech Index, semiconductor companies KLA-Tencor and Advanced Micro Devices both fell after reporting strong earnings. KLA fell $13.25, or about 17 percent, to $64.75 on volume of 12 million shares, more than twice the stock's average daily volume. AMD dropped $5 to $71 on volume more than three times its daily average.
Seagate Technology also fell $5.81, or nearly 11 percent, to $44.19 after posting stable earnings on slow sales.
The Philadelphia semiconductor index fell 28 to 1,009.70, led by chip equipment makers KLA and Applied Materials which lost $8.56 to close at $89 on a volume of 25 million shares, more than twice its daily average.
Exodus Communications and Level 3 Communications posted gains. Exodus rose $1.19 to $98.19 after SG Cowen reiterated its "strong buy" rating on the network company.
Level 3 jumped $6.31, or 9 percent, to $75.63 after Viatel said it would buy a $150 million stake in the company's cable system. Viatel's shares fell $1.94 to $32.50.
A German court found America Online liable for allowing people to swap pirated music files on its service. AOL shares closed down $3.94 at $58.56
Shares of Ariba dropped $6.94 to $65.06 after the business e-commerce software maker reported a narrower-than-expected second-quarter loss, driven by strong software sales.